Posted in Marketing and Strategy Terms, Total Reads: 385
Definition: Instalment Buying
It is a system in which a person, entity, or organisation pays for a commodity or service at regular intervals over a period of time because of which the buyer can use the commodity or service instantly. The person, entity or organisation may resort to this system because of their inability to pay for the commodity or service at this instant or because they may need their existing resources for other purposes. An example of this would be that of buying a car or a house from a seller.
Usually people do not have that amount of money at their disposal at that instant or may not want to fully invest the whole amount. So they resort to instalment buying where they pay a certain amount at that instant and agree to pay the rest in instalments or regular intervals of time. There may be interest associated with the payment.
There are several advantages and disadvantages associated with instalment buying. The advantage is that people get to use the commodity or service which they might not be able to avail if they had to pay the whole amount at that instant. A person who wants to buy a house may not be able to buy that unless he/she has an option of paying it in instalments. Also from the sellers side they may be able to earn more amount over a period of time because of their ability to give the commodity or service at instalments by the way of levying interest, if the interest is more than rising prices.
The disadvantage associated with it is the companies would have to check the credit worthiness of the buyer to give the commodity or service to him. This adds to the company’s cost. Even after this, the customer may fail in his/her instalments which can cost dearly to the company.